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ECB and BOE Have Spoken!

Thu, Dec 4 2008, 15:55 GMT
by Lena Manousarides

FXstreet.com Independent Analyst Team


The interest rate decisions by BOE and ECB came and gone, with traders left feeling more confused than before. BOE has cut rates as expected 100bps and ECB surprised markets by cutting 75bps rather than just 50 which was forecasted.

Trichet said in his press conference in front of journalists, that the decision was taken after a thorough look of the latest economic deteriorating conditions and Bank acted as needed to bring back price stability amongst European Nations. He also said that the economic outlook looks dismal for the coming months but didn’t comment as to what the bank will do in the next monetary policy meeting.

GBP/USD was trading heavily early in the morning and the pair broke important support level of 1.4550 which was the lowest level seen back in October and made new multi year lows at 1,4460. However, after the news of the rate cut passed, it was proved once again a “buy the rumor sell the fact” move as pound retraced higher. For now, levels to watch will be 1.4730 on the upside ahead of 1.4780 and on the downside if 1.4460 gives way then pound may be heading towards 1.43.

EUR/USD was following in the same footsteps of the pound and although was making new lows in the morning below 1.26, the move was quickly retraced after Trichet finished his speech. The range of 1.25-1.28 is still intact and only one clear break of those levels can give the pair some awaited direction.

Don’t forget that traders are still in a wait and see mode, as tomorrow we have the mother of all news, nonfarm payrolls. The very fact that the country is in recession and the employment sector suffers from so many negative consecutive months makes everyone wary and cautious and if we get another really negative number below -250.000 stocks might suffer another risk aversion sell off.

As we have noticed recently, the nonfarm payroll data are proving to be almost a non event for the currencies and that is mainly due to the risk aversion and the need of traders to remain aside of the market at the time of release. Tomorrow we expect maybe the same to happen again and even though the number can be potentially bad for the dollar, traders may once again support the greenback due to the falling stocks. One thing is for sure, whatever happens tomorrow it will probably set the tone for next week and keep traders alert for the next big event…


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Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer.

Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.

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